The risk rebound theme extended well into Asia this Wednesday, as investors placed their concerns about China coronavirus’s potential economic impact on the back burner and cheered the upbeat US and Australian fundamentals. The Asian stocks tracked the Wall Street bounce overnight, driven by upbeat Apple Inc earnings.
Markets re-assess the economic impact of the coronavirus, with 130+ death toll in China and about 6,000 confirmed cases. Hong Kong markets returned from the Lunar New Year holiday and slumped 2.5% on the China virus anxiety.
However, the risk-on trades were unaffected, as S&P 500 futures rose 0.30% and Treasury yields jumped nearly 1% across the curve. Meanwhile, both crude benchmarks rebounded sharply, underpinned by a surprise draw in the API Crude Stocks. Consequently, the safe-havens, namely, the yen, Swiss franc and gold were pressured. Gold held the lower ground around $1565 on expectations of less dovish Federal Reserve’s (Fed) monetary policy decision.
Across the G10 fx space, the AUD/USD pair benefited from upbeat Australian CPI data that eased expectations of an imminent Feb RBA rate cut. The spot hit a fresh daily high at 0.6777. The Kiwi emerged as the weakest this session and dropped back below 0.6550, as markets digested the comments from the Reserve Bank of New Zealand (RBNZ) Assistant Governor Hawksby on the exchange rate value. Meanwhile, both EUR/USD and cable traded on the backfoot amid broad-based US dollar comeback.
Main Topics in Asia
RBNZ’s Hawksby: Lower NZD is helping to insulate the New Zealand economy
New Zealand PM Ardern: Roads, rail, schools and hospitals to be built
NZ FinMin Robertson: Economy in good shape, net debt will remain low
Hubei confirms 840 new cases of coronavirus and 25 more deaths reported – CCTV
McConnell says GOP doesn’t have votes to block impeachment witnesses – WSJ
Australian Consumer Confidence: Consolidation – ANZ
Aussie CPI Q4 Trimmed Mean 0.4% ( vs 0.4% expected and prior 0.4%)
Probability of an RBA rate cut in February continues to decline
US Official: White House did not ask for a suspension of US-China flights
Banks in China cut interest rate for small companies in Hubei province
China coronavirus could hit Beijing’s ability to meet US trade war deal import demands – SCMP
Key Focus Ahead
The Fed interest rate decision is expected to stand out at 1900 GMT later today and could likely set the tone for the markets in the coming months. In light of upbeat US macro data, China coronavirus outbreak and implications of the US-China phase one trade deal, the Fed Chair Powell’s economic outlook for the first half of this year will be closely watched.
Ahead of the Fed event, the US Good Trade Balance, Pending Homes Sales and EIA Crude Oil Stocks Change data will remain in focus, in absence of relevant economic data from the European calendar.
Meanwhile, the China coronavirus outbreak-related updates and EU-UK post-Brexit trade talks will grab some attention for any impact on the market sentiment.
EUR/USD: Buyers struggle for follow-through, focus on Fed
EUR/USD buyers are struggling to find follow-through, having successfully defended the psychological support at 1.10 on Tuesday with a bullish hammer candle. The Fed may validate the renewed expectations for a 2020 rate cut.
GBP/USD: Modestly flat above 1.3020, Huawei talks in the spotlight
GBP/USD sellers catch a breath after four consecutive days of declines. The UK’s favor for the Chinese tech giant negatively affects its friendship with the US. Brexit headlines keep calm while BOE readies for the decision.
Gold: Bulls looking for a discount in $1560s
Gold top in the making with a weekly shooting star and weekly divergence. H&S in the making, or follow through below 1530 and 1440 support levels. Bulls will be looking for a discount is momentum holds the support line.
Federal interest rate preview: Stable policy and an uncertain future
Steady rate policy expected at first meeting of 2020. US economy and Fed forecasts foresee little change. Economic impact of trade and China virus may be a topic for Chairman Powell.